Are Boards Ready For Digital Disruption? Digitization on Boards 2nd Edition

The pressures surrounding digital disruption and security are intensifying. And the digitization debate is gathering pace. Yet when it comes to exactly how organizations are addressing digitization, the picture remains fragmented and multiple questions surround its role.

To what extent is digital an agent of change for your organization? Should you continue with business as usual? Or deliberately engineer digital into specific parts of your supply chain? Should digitization have a higher purpose, to drive innovation or even transform your business model? If so, in what time frame, and with what resources?

Crucially, to what extent is your Board equipped to ask the right questions, and implement the answers in the right place, at the right time?

In the 2nd half of 2016, Amrop mapped the digital competencies of 300 boards (top 20 stock-listed companies in 15 countries in Europe, plus the US). We looked at the profiles of 3,342 board members. We supplement our analysis with interviews conducted during 2016 and 2017 with board members of listed organizations.

What the Numbers Say – 6 Findings

1 - Digital representation in non-tech companies is low and slow-moving

5% of board members in non-tech companies have digital competencies.

Currently only 5% of board profiles have digital competencies. And almost nowhere do we see any significant movement. Looking only at the digital representation of the countries analyzed over our past two editions, the overall average rose from 5% in 2015 to 6% in 2016.

2 - Digital representation is rising in the tech sector

43% of Board Members in technology companies have digital competencies.

Unsurprisingly, digital representation on the boards of tech players far outstrips that of non-tech equivalents. And with 79% representation, Poland is the clear leader.

Looking at only the countries analyzed in our past two reports, the picture for tech companies is also more dynamic than for non-tech peers, with representation rising from 36% to 44%. Sweden, the UK and the US have more than doubled their representation, and France has made considerable strides.

This year, despite doubling its digital representation, the US still ranks low – we hypothesize that US tech companies rather tend to seek financial and consumer competencies at board level.

3 - The gap between tech and other sectors is widening

Digital on tech sector boards is now nearly 9x that of other sectors, vs 7x in our last analysis

Now the gap is widening. With representation in the digital/technology sector at 43% and at 5% for other sectors, it remains to be seen whether the trend will continue.

One explanation is the time needed to nominate and integrate board members, with some sectors further blocked by regulation (such as financial services).

4 - Only 3% of Boards have a Technology Committee

Traditional committees still dominate

Examining 300 Boards of listed companies we found only 9 official technology committees, (in 6 countries). Hence only 3% of the boards analyzed have a technology committee. Their rarity contrasts strongly with other committees.

5 - Digital is a catalyst for gender diversity

Women now hold 35% of all board positions with a digital/technology profile

We found a correlation between boards with tech profiles and a higher degree of female representation. Women now hold 35% of all digital/technology positions in the boards surveyed; a significant uptake since last year.

France, Italy, Sweden, Norway and Netherlands lead, with around 50% of digital/tech profiles represented by women. In Sweden and Belgium, all new tech profiles entering boards in 2016 are women. Turkey, USA, UK, Spain and Poland are at the bottom of the list, having named no new female digital/tech board members in 2016.

Many new digital directors are younger - and often the first females on a board, bringing experiences from completely different company cultures. New entrants likely need stronger onboarding to ensure a robust tenure, in which their impact is maximized.

Views from the C-Suite – 4 key findings

To go deeper, Amrop conducted confidential interviews with 19 board members from listed organizations during 2016 and 2017. Few saw digital as having a primary role in the business.

1 - Low Satisfaction indicates work in progress

Half are engaged on the journey, with much done and a long road ahead.

A third are dissatisfied, hardly any fully satisfied. Issues include complex and fragmented organizational structures, the low or questionable ROI of digital, and other pressing priorities on the board agenda. Digital initiatives also have a short shelf-life, and ‘good enough never is’. Questions also surround boards’ understanding of digitization, the often-cited ‘Kodak example’ may mask some underlying digital illiteracy. For digital evangelists, realism and patience are the name of the game.

2 - Cyber security is one of several threats – but digitization is a double edged coin

Board members are facing digitization with eyes wide open.

Cyber security is a burning red thread - the most often-cited threat. Regulation is impeding progress in, for example, financial services, slowing the introduction of new board members or the digitization of critical processes. Several fear data overload, with customers dissatisfied with their levels of data access. However, with threats come opportunities for agile organizations who adopt a clear strategy and get the timing right.

3 - Process is first in line for digital investment

Despite cyber security threats, investments dedicated to streamlining processes (often in multiple zones of an organization) are most common. Areas range from sales support to supply chain management, procurement, and general IT infrastructure. Overall, the pattern has not changed much since our last visit. A step-by-step approach prevails and digital remains primarily an operational enabler, with customer interface a high priority. The emphasis is more on exploitation than exploration - business model transformation is rarely in the picture.

4 - Boards face hiring dilemmas – agile thinking can solve them

The T-shaped profile remains sought-after: gravitas, broad business shoulders and digital incisiveness. Cyber attacks aside, the stakes are high, for example, using Industry 4.0 data to anticipate and prevent serious production blockages. So safe and experienced hands are wanted.

How and where to find these is not so easy. Boards must reconcile the dilemma of youth (up-to-the-minute digital knowledge, often in the heads of young digital natives working in successful start-ups) and maturity (seasoned hands, large-scale transformation experience in a corporate setting). One solution, if the Board can accommodate it, is to compose the T-shape from more than one profile. Another is to expose existing senior talent to the latest developments in Silicon Valley, and engage in aggressive training and development.

Management Messages

Chicken or egg? Digitization creates vicious circles.

Our interviews reveal that digitization can often end up chasing its own tail. Here are some potential traps (paraphrased). These may partially explain the persistently low representation of digital board profiles in non-tech organizations.

1 - “If we don’t know our digital strategy, how can we decide what if any digital profile/s to bring to the board? Yet, how can we define a strategy without them?”

2 - “Our infrastructure and processes are heavy and fragmented. How can we integrate digitization into outmoded structures? Yet without digitization, how can they be updated and streamlined?”

3 - “Technology evolves fast. So systems quickly go obsolete, absorbing massive resources and providing insufficient ROI to justify further investment.”

Board education can pre-empt them

Costly mis-hires, strategic paralysis, risky re-designs. It doesn’t have to be this way. Boards can avoid vicious digitization circles by designing time-limited development and coaching programs for members, also working with their CHROs. With this knowledge in hand, the thinking can start. But with what components?

Here are 6 suggestions, shared with us by Board members.

1 - Tap into internal knowledge. Create space for digital/technical dialogue. One way is to assign a dedicated Strategy Day - connecting the Board and Executive Management team on the digital/technical theme outside the boardroom.

2 - Learn from tech companies. With 43% digital representation on the boards of technology companies, these provide a wealth of insights into digitization. (The sector also accounts for the largest board talent pool).

3 - Look beyond Silicon Valley. Many digital lessons are being learnt in unlikely places. With 12% digital representation on their boards, (double the 5%) average), Finland leads in digital board representation for non-tech listed companies. In the tech sector, Poland is soaring at 79%. Norway, Sweden and Denmark are also in the upper echelons.

4 - And also go to Silicon Valley. In this and a previous study (‘Welcome to the Flight Deck’), Amrop finds examples of boards who take management teams to Silicon Valley to learn from the latest innovations. Where will you hold your next board meeting?

5 - Combine digital and diversity. Diversity drives innovation. And digital is catalyzing gender diversity; women now hold 35% of digital/technology board positions. To ensure new voices are heard, boards may need to question how they interact as a group. Board assessment and rigorous onboarding for new members, are strongly advised.

6 - Engage in reverse mentoring. Amrop's N Fellowship matches top-level computer engineering students with CEOs. Over a summer placement at the workplace of the CEO, a next-gen innovator takes a fresh view on specific parts of the business. This unique program is operated by Amrop and NavTalent, a young US-based organization helping engineers and startups navigate the technical recruiting ecosystem. To date, all CEO’s confirmed that they would gladly repeat the experience.

For the Executive Summary, click here.

For the Full Report, click here.

For the Slide Deck, click here